BSP says its monetary policy stance appropriate

MANILA, Philippines - A Bangko Sentral ng Pilipinas official said yesterday the central bank’s monetary policy stance remains appropriate as inflation continues to be within target.

“The assessment is that the current monetary policy setting remain appropriate and this is because the inflation path seems to be within target,” Dennis Lapid, deputy director for BSP’s economic research, said in a briefing.

“Inflation expectations as far as we can see continue to be firmly anchored. The underlying price pressures... indicate an uptick but for the most part are still manageable,” he added.

The central bank expects inflation to average 4.5 percent this year, within its three to five percent target range.

The December forecast was an upward revision from four percent on the back of higher oil prices, the record-high Manila Electric Co. (Meralco) power adjustments, and spike in food prices following natural calamities in the latter part of 2013.

But since the Supreme Court issued a temporary restraining order against Meralco’s power rate adjustment, the BSP said inflation average this year could actually be lower than previously projected although still within target.

“We continue to see firm prospects for domestic liquidity,” Lapid said.

M3 or the broadest measure of domestic liquidity has risen to a record high of 36.5 percent in November last year.

The central bank earlier said the uptick in M3 is only seen as temporary, and thus, not inflationary. The BSP expects M3 expansion to start decelerating this year.

“We see that the balance of the risks to inflation are still on the upside,” Lapid said, noting expectations are still within the target.

Inflation last year averaged three percent, the lower end of the central bank’s three to five percent target range.

The manageable inflation together with a robust economic growth has allowed the central bank to keep key policy rates steady throughout 2013.

Overnight borrowing and lending rates, which currently stand at 3.5 percent and 5.5 percent, respectively, will be revisited next on Feb. 6, the first rate-setting for the year.